NerdWallet's Smart Money Podcast - Retirement Changes You May Have Missed

Episode Date: January 11, 2023

Important changes are coming to how you can save for retirement — including one that will allow your student debt payments to count toward retirement contributions.  In this episode, Sean Pyles and Anna Helhoski run through the retirement benefits that were passed by Congress at the end of last year and when those changes go into effect.   To send the Nerds your money questions, call or text the Nerd hotline at 901-730-6373 or email [e-mail]. Like what you hear? Please leave us a review and tell a friend.

You might have missed it at the end of last year, but Congress passed some pretty notable changes to how you can save for retirement, including one change that will make student loan payments count toward retirement contributions. In this Money News episode of Smart Money, we will give you the rundown. Welcome to the NerdWallet Smart Money podcast, where you send us your money questions and we answer them with the help of our genius nerds. I'm Anahil Hoski. And I'm Sean Piles. If you have a money question for the nerds, call or text us on the Nerd Hotline at 901-730-6373. That's 901-730-NERD. Or email us at podcast at nerdwallet.com. Follow us wherever you get your podcasts to get

new episodes in your feed every Monday. And if you like what you hear, leave us a review. Ana, as I said at the outset, a lot of folks might have missed the many changes coming to retirement accounts that were approved by Congress at the end of last year. Can you tell our listeners what's going on? Sure. If you're anything like me, you might have been a tad checked out right before the holidays, so you too might have missed the details on the sprawling federal spending package that passed just before then. The $1.7 trillion bill passed pretty quickly in order to avoid a government shutdown. It also included a provision that will directly impact millions of Americans in the coming years. The provision is known as Secure 2.0, and it brings a lot of changes to how folks can save

retirement, though we should note that many of these changes take effect over the coming years. Here's what Secure 2.0 will do for savings. One big change is that starting in 2024, employers can base 401k matches on a worker's student loan payments. Borrowers with student loan debt often report not being able to contribute to their 401ks at work because of their debt. And Secure 2.0 gives employers the option of counting an employee's student loan payments when the employer puts matching funds in their retirement plan. That's pretty remarkable, and student loan borrowers definitely will want to take advantage of that when they can. Secure 2.0 also pushes back the age when you have to start withdrawing money from IRAs, 401ks, and most other retirement savings accounts. The age was already pushed back from 70.5 to 72 in previous legislation.

This year, it moves from 72 to age 73. By 2033, for people born in 1960 and later, it'll be age 75. And this update exemplifies some of the critique around the retirement changes, namely that a lot of the benefits are going to those who are wealthier and older. Right, and that's very true, and people who also will already be able to access retirement benefits. But there is some good news for regular folks. Next year, people will be able to withdraw up to $1,000 from their 401k and IRA accounts to cover certain financial emergencies without having to pay a penalty. Usually, you have to pay a 10% fine on withdrawing from these types of accounts prematurely. One catch is that the money

needs to be paid back within three years if you want to make another penalty-free emergency withdrawal. In the past year, we've seen consumer savings rates take a nosedive, so this could provide a much-needed lifeline to help people cover emergency expenses without going into costly credit card debt. Also next year, people who have money left over in a 529 educational savings account will be able to roll over at least some of it into a Roth IRA account. Beneficiaries of these accounts will be able to roll over up to $35,000 in their lifetimes. And here's one of the most significant changes in how people sign up for retirement accounts. In 2025, automatic enrollment will go into effect for newly

established retirement plans. That means workers whose employers launch a 401k or 403b retirement account will be automatically enrolled into those plans. Employers can also automatically enroll workers into emergency savings accounts, which will operate similarly to retirement savings accounts. So we've just run through a number of changes to how folks can save for and spend their retirement savings, and we haven't even covered every change coming. This is good news for workers whose employers provide retirement plans. Unfortunately, many workers don't, and the Secure 2.0 Act doesn't help them. But beyond what passed at the end of 2022, the new year also ushered in a number

of changes to retirement accounts and other savings vehicles. The IRS previously announced updated maximum annual contributions to retirement accounts in 2023. For example, workers with a 401k, 403b, a 457 plan, or the federal government's thrift savings plan are now able to contribute up to $22,500 to their accounts. That's a nearly 10% increase from what was allowed in 2022. Also, those over 50 have a higher catch-up contribution limit that would allow them to save up to $30,000 beginning this year. And IRA contribution limits increased by more than 8% to $6,500 in 2023. There are also some changes coming to health savings accounts or HSAs. So if you're enrolled in a high deductible health plan, the amount you can save for your health savings account is getting a boost. It's increasing by $200 for

individuals and $450 for families. And people at or close to retirement age already had a few things going for them. Social security benefits are set to receive an 8.7% cost of living adjustment in 2023, the largest since 1981. Premiums and deductibles for Medicare Part B are also going to be cheaper for the first time in a decade. Insulin and vaccines will be less expensive too. Sean, we just ran through a ton of information about changes to how people can save for retirement. If you have any questions about saving for retirement or anything else money related, really leave us a voicemail

or text us on the Nerd Hotline at 901-730-6373. That's 901-730-NERD. You can also email us at podcast at nerdwallet.com. Visit nerdwallet.com slash podcast for more info on this episode. And remember to follow, rate, and review us wherever you're getting this podcast. This episode was produced by Anna and myself with help from Liz Weston. Audio wizard Kaylee Monaghan mixed our audio. And Anna wrote our show notes.

Here's our brief disclaimer. We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances. And with that said, until next time, turn to the nerds.